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Scorpio Bulkers Inc. Announces Financial Results For The Third Quarter Of 2016

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Scorpio Tankers Inc. yesterday reported its results for the three months and year ended December 31, 2017.

Results for the three months ended December 31, 2017 and 2016

For the three months ended December 31, 2017, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $39.2 million, or $0.14 basic and diluted loss per share, which excludes from the net loss (i) $1.3 million of transaction costs related to the previously announced merger with Navig8 Product Tankers Inc (“NPTI”) (see Merger with Navig8 Product Tankers Inc below) and (ii) a $1.0 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $2.3 million, or $0.01 per basic and diluted share. For the three months ended December 31, 2017, the Company had a net loss of $41.5 million, or $0.15 basic and diluted loss per share.

For the three months ended December 31, 2016, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $29.4 million, or $0.18 basic and diluted loss per share, which excludes a $0.2 million, or $0.00 per basic and diluted share, unrealized loss on derivative financial instruments. For the three months ended December 31, 2016, the Company had a net loss of $29.7 million, or $0.18 basic and diluted loss per share.

Results for the years ended December 31, 2017 and 2016

For the year ended December 31, 2017, the Company’s adjusted net loss was $101.7 million (see Non-IFRS Measures section below), or $0.47 basic and diluted loss per share, which excludes from the net loss (i) a $23.3 million loss on sales of vessels, (ii) $36.1 million of transaction costs related to the previously announced merger with NPTI, (iii) a $5.4 million gain recorded on the previously announced purchase of the four NPTI subsidiaries that own four LR1 tankers, and (iv) a $2.5 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $56.5 million, or $0.26 per basic and diluted share. For the year ended December 31, 2017, the Company had a net loss of $158.2 million, or $0.73 basic and diluted loss per share.

For the year ended December 31, 2016, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $10.7 million, or $0.07 basic and diluted loss per share, which excludes (i) a $2.1 million loss on sales of vessels, (ii) an aggregate write-off of $14.5 million of deferred financing fees, (iii) a $1.4 million unrealized gain on derivative financial instruments and (iv) a $1.0 million aggregate gain recorded on the repurchase of $10.0 million aggregate principal amount of the Company’s Convertible Notes. The adjustments resulted in an aggregate decrease of the Company’s net loss by $14.2 million, or $0.08 per basic and diluted share. For the year ended December 31, 2016, the Company had a net loss of $24.9 million, or $0.15 basic and diluted loss per share.

Emanuele Lauro, chief executive officer and chairman of the board commented, “During the fourth quarter of 2017, we incurred some additional costs and reductions in revenue from the integration of the NPTI fleet. We believe that these steps were important in order to better capitalize on the improving product tanker market fundamentals. This improvement is being reflected in higher asset values and higher spot and forward time charter rates.”

On February 13, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.01 per share, payable on or about March 27, 2018 to all shareholders as of March 12, 2018 (the record date). As of February 13, 2018, there were 326,507,544 shares outstanding.

Diluted Weighted Number of Shares

Diluted earnings per share is determined using the if-converted method. Under this method, the Company assumes that the Convertible Notes (which were issued in June 2014) were converted into common shares at the beginning of each period and the interest and non-cash amortization expense associated with these notes of $5.6 million and $22.3 million during the three months and year ended December 31, 2017, respectively, were not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three months and year ended December 31, 2017, the Company’s basic weighted average number of shares were 283,668,720 and 215,333,402, respectively. The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three months and year ended December 31, 2017 as the Company incurred net losses.

For the three months and year ended December 31, 2016, the Company’s basic weighted average number of shares were 161,868,161 and 161,118,654, respectively. The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three months and year ended December 31, 2016 as the Company incurred net losses.

As of the date hereof, the Convertible Notes are not eligible for conversion.

Summary of Recent and Fourth Quarter Significant Events

Below is a summary of the average daily TCE revenue (see Non-IFRS Measures section below) and duration for voyages fixed for the Company’s vessels thus far in the first quarter of 2018 as of the date hereof (See ‘Other operating data’ table below for definition of daily TCE revenue):

For the LR2s in the pool: approximately $15,000 per day for 60% of the days.

For the LR1s in the pool: approximately $9,500 per day for 60% of the days.

For the MRs in the pool: approximately $14,750 per day for 60% of the days.

For the ice-class 1A and 1B Handymaxes in the pool: approximately $12,000 per day for 60% of the days.

Below is a summary of the average daily TCE revenue earned on the Company’s vessels during the fourth quarter of 2017:

For the LR2s in the pools: $15,465 per revenue day (includes the LR2s purchased from NPTI and operated in the Navig8 Alpha8 pool for a portion of the fourth quarter 2017).

For the LR1s in the pools: $11,408 per revenue day (includes the LR1s purchased from NPTI and operated in the Navig8 LR8 pool for a portion of the fourth quarter 2017).

For the MRs in the pool: $12,012 per revenue day.

For the ice-class 1A and 1B Handymaxes in the pool: $10,140 per revenue day.

Raised estimated net proceeds of $99.5 million in an underwritten public offering of 34.5 million shares of common stock (including 4.5 million shares of common stock that were issued when the underwriters fully exercised their option to purchase additional shares) at an offering price of $3.00 per share. Scorpio Services Holding Limited (a related party affiliate) purchased 6.7 million of these shares at the offering price. This offering, including the exercise of the underwriters’ overallotment option, closed in December 2017.

Accepted delivery of STI Donald C Trauscht, STI Esles II and STI Jardins, three MR product tankers that were under construction, from Hyundai Mipo Dockyard Co. Ltd. of South Korea (“HMD”). STI Donald C Trauscht was delivered in October 2017; STI Esles II and STI Jardins were both delivered in January 2018. As part of these deliveries, the Company drew down $20.7 million, $21.5 million and $21.5 million in October 2017, December 2017, and January 2018, respectively, from its 2017 Credit Facility to partially finance the purchase of these vessels.

Closed on the previously announced finance lease arrangements for STI Onyx and STI Amber in October and November 2017, respectively, which raised $15.2 million in additional liquidity after the repayment of debt.

Paid a quarterly cash dividend on the Company’s common stock of $0.01 per share in December 2017.

Merger with Navig8 Product Tankers Inc

On May 23, 2017, the Company entered into definitive agreements to acquire NPTI, including its fleet of 12 LR1 and 15 LR2 product tankers for 55 million common shares of the Company and the assumption of NPTI’s debt. The merger was consummated as follows:

On May 30, 2017, the Company issued 50 million shares of common stock in an underwritten public offering at an offering price of $4.00 per share for net proceeds of approximately $188.7 million, after deducting underwriters’ discounts and offering expenses. The completion of this offering was a condition to closing the merger with NPTI.

On June 14, 2017, the Company acquired certain of NPTI’s subsidiaries that own four LR1 tankers for an aggregate acquisition price of $156.0 million, consisting of $42.2 million of cash and $113.8 million of assumed indebtedness (including accrued interest). The cash portion of the acquisition price (after considering cash flows from operations) formed part of the balance sheet of the combined company upon the closing of the merger on September 1, 2017.

On September 1, 2017, the Company acquired the remaining eight LR1 and 15 LR2 tankers upon the closing of the merger.

During the fourth quarter of 2017, certain vessels acquired from NPTI transitioned technical managers and/or transitioned from trading crude oil to clean products. The Company incurred approximately $3.1 million of additional costs as a result of these transitions and also incurred delays as the cargo tanks were cleaned. In addition, for a portion of the quarter, certain of these vessels operated outside of the Scorpio pools in the spot market at below market rates before regaining their vettings. The costs are discussed below under ‘Explanation of Variances on the Fourth Quarter of 2017 Financial Results Compared to the Fourth Quarter of 2016’.

Finance Lease Agreements

In September 2017, the Company entered into finance lease agreements for five 2012 built MR product tankers (STI Amber, STI Topaz, STI Ruby, STI Garnet and STI Onyx) with an unaffiliated third party for a sales price of $27.5 million per vessel. The financing for STI Topaz, STI Ruby and STI Garnet closed in September 2017. The financing for STI Onyx closed in October 2017 and the financing for STI Amber closed in November 2017. The Company’s liquidity increased by $36.5 million in aggregate ($21.3 million in the third quarter of 2017 and $15.2 million in the fourth quarter of 2017), after the repayment of outstanding debt, as a result of the closing of these transactions.

Each agreement is for a fixed term of seven years at a bareboat charter rate of $9,025 per vessel per day, and the Company has three consecutive one-year options to extend each charter beyond the initial term. Furthermore, the Company has the option to purchase these vessels beginning at the end of the fifth year of the agreements through the end of the tenth year of the agreements. A deposit of $5.1 million per vessel was retained by the buyer and will either be applied to the purchase price of the vessel if a purchase option is exercised, or refunded to the Company at the expiration of the agreement (as applicable).

As a result of these transactions, the Company repaid the outstanding debt balance of (i) $44.6 million in aggregate for three vessels on its 2016 Credit Facility in September 2017, (ii) $13.8 million on its HSH Credit Facility for one vessel in October 2017 and (iii) $14.9 million on its 2016 Credit Facility for one vessel in November 2017. These agreements are being accounted for as financing transactions.

Time Charter-in Update

In February 2018, the Company entered into a new time charter-in agreement on a 2013 built, LR2 product tanker for six months at $14,300 per day. The Company has an option to extend the charter for an additional six months at $15,310 per day. This vessel is expected to be delivered before the end of March 2018.

In January 2018, the Company entered into a new time charter-in agreement on a 2012 built, MR product tanker for one year at $14,000 per day. The Company has an option to extend the charter for an additional year at $14,400 per day. This vessel is expected to be delivered before the end of March 2018.

In November 2017, the Company exercised the option to extend the time charter on a 2013 built, MR product tanker for an additional six months at $13,250 per day effective December 2017. The Company also has an option to extend the charter for an additional year at $14,500 per day.

In November 2017, the Company exercised the option to extend the charter on a 2015 built, LR2 product tanker that is currently time chartered-in for an additional six months at $15,750 per day effective January 2018.

In November 2017, the Company entered into a new time charter-in agreement on a 2013 built, MR product tanker that was previously time chartered-in by the Company for one year at $13,950 per day effective January 2018. The Company has an option to extend the charter for an additional year at $15,750 per day.

$250 Million Securities Repurchase Program

In May 2015, the Company’s Board of Directors authorized a Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s securities which, in addition to its common shares, currently consist of its (i) Convertible Notes, which were issued in June 2014, (ii) Unsecured Senior Notes Due 2020 (NYSE: SBNA), which were issued in May 2014 and (iii) Unsecured Senior Notes Due 2019 (NYSE: SBBC), which were issued in March 2017.

In April 2017, the Company acquired an aggregate of 250,419 of its Unsecured Senior Notes due 2017 for aggregate consideration of $6.3 million, which was the result of the cash tender offer of such notes. The remaining notes matured in October 2017 and were repaid in full.

As of the date hereof, the Company has the authority to purchase up to an additional $147.1 million of its securities under its Securities Repurchase Program. The Company expects to repurchase its securities in the open market, at times and prices that are considered to be appropriate by the Company, but is not obligated under the terms of the Securities Repurchase Program to repurchase any of its securities.